Saturday, October 17, 2015

Facing Up to $50 Oil Russia Returns To Farming For Growth

I was being ironic with the headline and I hope Evans-Pritchad didn't choose the Soviet poster to accompany the piece.
From The Telegraph Oct. 13:Russia abandons hope of oil price recovery and turns to the plough

The Kremlin has launched an incredible volte-face in economic policy and
turned to traditional industries like farming in the face of tumbling oil
prices

Russia has abandoned hopes for a
lasting recovery in oil prices, bracing for a new era of abundant crude
as US shale production transforms the global energy market.

The Kremlin has launched a radical shift in strategy, rationing funds
for the once-sacrosanct oil and gas industry and relying instead on a
revival of manufacturing and farming, driven by a much more competitive
rouble.

"We have to have prudent
forecasts. Our budget is based very conservative assumptions of oil at
around $50 a barrel," said Vladimir Putin, the Russian president.

"It is no secret that if the price goes down, investment peters out and
disappears," he told a group of investors at VTB Capital's 'Russia
Calling!' forum in Moscow.

The
Russian finance minister, Anton Siluanov, said over-reliance on oil and
gas over the last decade had been a fundamental error, leading to an
overvalued currency and the slow death of other industries in a textbook
case of the Dutch Disease.

"We should
stop caring so much about the oil industry and leave more space for
others. We have to take very tough decisions and redistribute our
resources," he said.

The new $50 benchmark for oil is even lower
than the Russian central bank's "extreme scenario" of $60 first
prepared last year.

The new realism has forced the Kremlin to ditch a raft of budget
commitments and to stop topping up the pension reserve fund. Oil and gas
taxes make up half the state's revenue, and almost 70pc of Russia's
exports.

Igor Sechin, chairman of Russia's oil giant Rosneft,
accused the government of turning its back on the energy industry,
lamenting that his company is being throttled by high taxes. He warned
that the Russia oil sector will slowly shrivel unless there is a change
of policy....MORE